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GM Bondholders Strike a Deal As Bankruptcy Deadline Looms

As a bankruptcy deadline looms for General Motors, major bondholders agreed to a deal that offers them a 25 percent stake in the company if they drop opposition to the company's reorganization plan. A reporter explains the negotiations.

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    Some of General Motors' main bondholders agreed today to take as much as 25 percent of the company. G.M. made the disclosure to the Securities and Exchange Commission.

    The bondholders agreed to forgive part of G.M.'s outstanding debt of $27 billion. They will also support selling G.M.'s assets to a new company, once the automaker enters federal bankruptcy protection.

    The news came as a Monday deadline for declaring bankruptcy ticked closer.

    Joining us now to help sort through all this and more on our lead story is David Shepardson of the Detroit News.

    Good to see you again. Thanks for being with us.

  • DAVID SHEPARDSON, The Detroit News:

    Thanks, Judy.


    First of all, David, remind us who these bondholders are.


    These are big institutions — pension funds, universities, banks — that over the years have bought about $27 billion in debt that have helped G.M. fund its operations.


    And some individuals, as well?


    Right, about 20 percent are retail investors. They bought so-called baby bonds for as little as $25. But the bulk are held by big institutional investors.


    And why was the federal government, which is behind all this, so anxious to get these bondholders on board?


    Well, when the Bush administration gave G.M. that lifeline in December of $17 billion, it required G.M. to cut its debt by two-thirds. I mean, this is a company that's had way too much debt — over $60 billion — and they had to do something to cut it.

    And it was a clear requirement that they chop that debt down, so they gave them a deadline, you know, reduce it by 90 percent, and they offered the bondholders very little. That deal on Tuesday was overwhelmingly rejected.


    But why did the — so why did they change their mind? I mean, as you said, as of last night, they were saying no. What turned it around?


    Well, in the end, the government, you know, made it a little sweeter. Instead of just 10 percent equity, now the bondholders can get warrants for 15 percent additional equity, as you said, to control about 25 percent of the company. So at the end of the day, it was about money. The bondholders get a little bit more. The alternative was roll the dice in bankruptcy and potentially get nothing, because they would be behind the government, which is loaning almost $50 billion to the company, the secured debt-holders and the UAW.

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